Service provision changes: Relocation because of TUPE transfer was a substantial change to employees' material detriment
In Abellio London Ltd (Formerly Travel London Ltd) v Musse and others UKEAT 0283/11 and 0631/11, the Employment Appeal Tribunal (“EAT”) ruled that a relocation of six miles within central London which resulted in the employees having to travel an extra one to two hours to work following a service provision change amounted to a substantial change to employees’ working conditions to their material detriment entitling them to resign under regulation 4(9) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). As regulation 4(9) of TUPE deems an employee’s resignation to be a “dismissal” where it is in response to such a change, the employees concerned were entitled to claim automatic unfair dismissal and liability for their dismissals passed to the transferee. Since it would not have mattered had the contracts of employment contained valid mobility clauses, the decision is not good news for transferees in TUPE transfer situations. The decision sets a very low hurdle for employees to overcome in order to be able to resign in reliance on regulation 4(9) of TUPE. Transferees will need to consider the extent of this risk when negotiating transfer provisions with the transferor, and, if necessary, seek indemnity protection.
What happened in this case?
Five bus drivers were employed by CentreWest on the 414 bus route, operating out of a depot in Westbourne Park, West London. When the operation of that bus route was transferred from CentreWest to Abellio, it was intended to operate the bus route out of Battersea, six miles away. The bus drivers objected to the transfer and resigned on the day of the transfer on the basis that their working day would increase by between one to two hours. The employees brought various Employment Tribunal claims against CentreWest and Abellio.
Substantial change in working conditions
The Tribunal first assessed whether the relocation amounted to a substantial change in working conditions to the material detriment of each employee, for the purposes of regulation 4(9). The test forwhether or not there is a “substantial change” in working conditions is a question of fact and will depend on the nature, as well as the degree, of change (Tapere v South London and Maudsley NHS Trust (2009) IRLR 972 ). The test for “material detriment” is subjective: the impact of the change in working conditions should be assessed from the employee’s point of view. If, applying these tests, the relocation amounted to a substantial change in working conditions to the material detriment of the employees, they could resign and claim that they had been dismissed under regulation 4(9).
The Tribunal ruled that the six mile relocation was a “substantial change”, bearing in mind the travel conditions involved in moving from North to South of the river. Further, from the employees’ perspective, the relocation was detrimental, and it was reasonable for the employees to regard it as such. Therefore the claimants had been dismissed at the point at which they resigned, and were entitled to claim unfair dismissal. As the claimants were dismissed because of the transfer, or a transfer-related reason (relocation), which was not an economic technical or organisational reason entailing changes in the workforce (ETO) they were deemed to be automatically unfairly dismissed under regulation 7(1) of TUPE. The EAT agreed with the Tribunal’s findings and upheld the employees’ claims of unfair dismissal.
Repudiatory breach of contract
Second, the Tribunal considered whether the relocation amounted to a repudiatory breach of the employees’ contracts which would entitle them to resign and claim constructive dismissal under regulation 4(11) and generally. The employees’ employment contract provided that CentreWest would endeavour to accommodate the employees’ preferred location but reserved the right to require them to work at a different location, as specified by CentreWest in a separate document. The contract also provided that CentreWest had the right, after consultation, to vary the terms of the contract, except where a variation would diminish statutory entitlement. The Tribunal found that the requirement to relocate was not permitted by the terms of the employees’ employment contract as the location of the new depot was not specified on the list of alternative locations prescribed by CentreWest. Further, a letter notifying employees of the transfer did not amount to a valid variation of their employment contracts as CentreWest could not vary the terms to include one of Abellio’s depots before the date of the transfer. Consequently, the Tribunal ruled that the requirement to relocate amounted to a repudiatory breach and therefore, when the employees resigned in response to CentreWest’s breach, they had been constructively dismissed. The EAT deemed it unnecessary to rule on this point, since it had agreed with the Tribunal’s determination on the issue of substantial change under regulation 4(9).
What does this decision mean for employers?
In light of this decision, employers will need to be aware of the risk of claims for automatic unfair dismissal under regulation 4(9) of TUPE where the working conditions of employees are to change as a result of a TUPE transfer. Abellio offers some guidance to employers on the question of whether a change in working conditions is likely to be “substantial”. It is clear that where a relocation is within an urban setting it is more likely that the change will be deemed “substantial” since the employees’ journeys to and from work are likely to be significantly affected. However, the Tribunal noted that a relocation of six miles might not be considered “substantial” in a rural/suburban setting where employees are more likely to be able to drive to work. Employers should bear in mind that the factors affecting the analysis of a change may vary from employee to employee. Since the test for “material detriment” must be considered from the employee’s perspective, it will be difficult for employers to assess the impact of proposed changes across a workforce or grouping of employees. However, it would seem that a change which extends an employee’s working day by between one to two hours is likely to constitute a “material detriment”. The EAT’s reassertion of the subjective test for “material detriment” creates a further difficulty for employers. This suggests that it will be relatively easy for employees to satisfy the requirements for a regulation 4(9) claim following a TUPE transfer. Consequently, transferees will need to determine the extent of this potential risk when negotiating the terms of the transfer and should try to seek indemnity protection from the transferor in the transfer provisions.
Liability of transferor/transferee
As a separate issue, the EAT considered the effect of an employee’s right to object to a transfer under regulation 4(7) of TUPE on the liability of employers for claims in circumstances where an employee resigns in response to an anticipated substantial change in their working conditions to their material detriment (regulation 4(9)). Under TUPE, where an employee objects to a transfer, the employee’s contract of employment and the rights, duties and liabilities under it will not transfer to the transferee (regulation 4(7)). In this situation, the employee’s employment with the transferor is treated as terminated from the date of the transfer, but they are not deemed to have been dismissed, and therefore cannot bring claims for unfair dismissal against their employer. However, if an employee objects to a transfer and later resigns in reliance on a substantial change in working conditions, they are deemed to have been dismissed and, on a plain reading of TUPE, it would seem that the transferor remains liable for any unfair dismissal claims.
Although, in Abellio, there was factual uncertainty as to whether one of the claimants had objected to the transfer prior to resigning, the EAT held that, in event that the claimant had objected and later resigned in such circumstances, liability for their dismissal would transfer to the new employer. This conclusion does not appear correct to us and it remains to be seen whether the EAT’s decision on liability will be followed in future cases. However, employers may seek to make provision for this uncertainty through the use of indemnities in the transfer agreement.